This Article is From Apr 19, 2019

Five-Year Tax-Saving Fixed Deposit: Interest Rates, Investment Limits And Other Key Details

A special type of term deposit or fixed deposit (FD) is eligible for deduction under the ambit of Section 80C.

Five-Year Tax-Saving Fixed Deposit: Interest Rates, Investment Limits And Other Key Details

FD interest rates: Investment in the five-year income tax-saving FD is eligible for the 80C tax benefits

Section 80C of the Income Tax Act offers deduction of up to Rs 1.5 lakh from taxable income in a year. A variety of investments, such as premium paid towards life insurance and contribution to a Public Provident Fund (PPF) Account, are eligible for the income tax benefit offered under Section 80C. A special type of term deposit or fixed deposit (FD) is also eligible for deduction in taxable income under Section 80C. A five-year time-deposit small savings scheme account in the post office is also eligible for Section 80C benefits. (Also read: You need to furnish these additional details in new income tax return forms)

Here are five important things to know about the five-year term deposit or fixed deposit (FD) accounts which offer income tax benefits:

Income tax-saving FD: Interest rates

Major banks today - from state-run State Bank of India (SBI) to private sector peers HDFC Bank and ICICI Bank - pay the following interest rates on the five-year, tax-saving fixed deposits, according to their websites.

BankInterest rate
General publicSenior citizen
State Bank of India6.85%7.35%
Punjab National Bank6.25%6.75%
India Post (five-year TD small savings scheme)7.80%7.80%
HDFC Bank7.25%7.75%
ICICI Bank7.25%7.75%
(Source: Bank, India Post websites)

Income tax-saving FD: Premature withdrawal

Also known as a tax-saving fixed deposit or tax-saving FD, this account allows a minimum maturity period of five years and a maximum of 10 years. That means the deposit is locked-in for a period of five years.

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Lenders do not allow a premature withdrawal from this type of FD accounts before completion of the lock-in period of five years.

Income tax-saving FD: Lock-in period

Investment in these fixed deposits - tax-saving FDs - is locked in for a period of five years from the date of issue, which means the investor cannot withdraw money during this period in order to utilize the tax benefit.

Income tax-saving FD: Investment limit

A maximum investment of Rs 1.5 lakh in a financial year is allowed in income tax-saver five-year fixed deposit.

SBI allows a minimum deposit of Rs 1,000 for investment in its tax-saving scheme, according to the bank's corporate sites - Any amount in the multiple of Rs 1,000 not exceeding Rs 1.5 lakh a year is allowed by the bank.